Does Immigration Hurt the Economy?

One of the big questions that rich countries face today is what to do about immigration. And one of the most controversial questions is whether to admit large numbers of migrants who are less skilled than average. Will a bigger supply of workers push down wages, as in the classic model of supply and demand? Will the new migrants vote for policies that weaken the very prosperity that they came to enjoy? Or instead will Adam Smith’s invisible hand somehow make it all work out for the best?

From a purely economic perspective, there’s little evidence that current migration levels in the U.S. are pushing down most workers’ wages.

From a purely economic perspective, there’s little evidence that current migration levels in the U.S. are pushing down most workers’ wages. Economists have long investigated what less-skilled immigration does to the wages of “native” home-country workers. For the rich countries, especially for the well-studied United States, the answer is clear: less-skilled immigration doesn’t do much to the wages of most longtime residents. The most pessimistic peer-reviewed estimate comes from Harvard economists George Borjas and Larry Katz, who reported that less-skilled immigration may have pushed down the wages of American high school dropouts by 8 percent. That’s a real loss—I would be upset if I had to take an 8 percent wage cut—but it’s the most pessimistic of the widely cited estimates.

Overall, however, it’s more common to find zero effect of migration on wages—or effects that are so close to zero that it’s hard to tell one way or the other. It’s even possible that economists Gianmarco I.P. Ottaviano and Giovanni Peri are right: they claim that less-skilled immigration to the United States has actually raised the wages of the vast majority of U.S.-born workers. They emphasize an important fact: less-skilled U.S. citizens aren’t usually in direct competition with less-skilled migrants. Recent waves of less-skilled immigrants tend to have, for instance, relatively weak English-language skills. For that and other reasons—in the authors’ words, because of different abilities in “language, quantitative skills, relationship skills and so on”—they’re not competing directly against U.S.-born, less-skilled, less-educated workers.

In their view the people in the United States hurt most by recent waves of non-native-English-speaking immigrants are actually previous waves of immigrants. Recent immigrants and older immigrants are substitutes for each other. Non-native English speakers tend to compete with each other for jobs, while U.S.-born English speakers, even those with limited job skills, have sizable regions of the labor market where they face little direct competition from immigrants.

That’s Ottaviano and Peri’s model, a story that can be checked against the facts. But after testing their model on recent U.S. data they conclude that wages of U.S.-born citizens are probably about 1 percent higher as a result of recent immigration: immigrants usually help longtime citizens get the job done better and faster, and that shows up in citizens’ wages. Even U.S.-born workers lacking a high school diploma are predicted to benefit on average, with wages rising by 1 or 2 percent. Taken together, immigration is a slight boon and not a peril in Ottaviano and Peri’s estimation.

About a decade ago, dozens of American economists signed an open letter in support of more immigration. The letter touched on many points: that less-skilled immigrants appear to push down the wages of U.S.-born citizens little if at all, that immigration helps rich-country economies in ways that don’t show up in official statistics, and that the biggest beneficiaries of less-skilled immigration are the immigrants themselves, whose lives are often transformed from a nightmare of dollar-a-day poverty to a realm of modest comfort, health, and safety. The diplomatically crafted letter, circulated by the Independent Institute, was signed by economists on the left and the right.

I’ve always been glad I signed this letter: it sums up the great promise of immigration. It’s always worth reminding citizens of the high-productivity countries that immigration is still the most reliable way to raise the living standards of people in low-productivity countries. Rather than send aid workers or cash to help people in poor countries, the people of the rich countries could just allow people in poor countries to leave poor countries. For people who care about ending the deepest poverty, migration, perhaps through guest worker programs like those in some Gulf states, should be at the top of the list of potential cures.

Thus the economics of less-skilled immigration to richer, more productive countries are reasonably clear: life-changing good news for the immigrant with only fairly small effects one way or the other on so-called “native” less-skilled workers. That’s true when we look at the short run or when we look across towns and cities within the same country. However, this analysis misses an important part of the picture. Perhaps the central economic concern isn’t a conventional economic concern at all. Perhaps, as Tyler Cowen of Marginal Revolution once wrote, “The key question is how many low-skilled immigrants a nation can take in and still keep a good politics.”

Crucially, all of the economic studies just cited hold politics aside and assume that less-skilled immigrants don’t have an effect on a high-skill nation’s government institutions. There’s a lot of evidence to suggest that good politics appears to depend on reasonably well-informed citizens—from Bryan Caplan’s work on the link between voter education and voter beliefs, or cross-country studies that find that higher national average test scores tend to predict lower average levels of corruption, or in the debates between philosophers over epistocracy (whether poorly informed citizens should have the right to vote). As Thomas Jefferson wrote in 1816, “If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be.”

With this we return to a central tension of immigration among the currently less-skilled: the possible—I emphasize possible—effect on long-run institutions. Will less-skilled immigrants tend to vote for policies that will weaken the wealth-creating opportunities they’ve enjoyed? Or will less-skilled immigrants and their descendants instead build up high levels of human capital, perhaps raising the average information levels of voters? If a country instead decides to admit large numbers of high-skilled immigrants, would that bring a more informed perspective into political discussions?

Hive Mind »argues that minor differences in national IQ are an important cause of a country’s overall prosperity.

Of course, the reverse is true: If nations follow the examples of Hong Kong, Singapore, and Canada, and embrace high human capital immigration policies, then they have a chance at bringing in better-informed future voters and future government officials, people who will tend to carry more information into the voting booth and into the bureaucracy. And since people who do better on standardized tests tend to be more patient on average, then voters (and government officials) who do better on IQ-type tests will tend to have a greater focus on the long run. Importantly, if future medical and education research can find ways to boost IQ-type scores in the very poorest countries, then in the long run these nations might endure a lot less economic misery and could reap the rewards of a more effective, less corrupt government.

The question of how immigrants and their descendants will tend to influence the political institutions of their new homes is tremendously important: governments are made by people, after all. And since immigration by the currently less skilled will likely be part of the future of the world’s rich economies, I sincerely hope that the rich countries will find deep and effective ways to raise the human capital, the education levels, and the test scores of all of these nations’ citizens and all of their immigrants. Our future may depend upon it.

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